N.C. Court of Appeals: Friday Investments v. Bally Total Fitness- Guaranty Following Discharge in Bankruptcy

Summary:

As part of its Chapter 11 reorganization Bally Total Fitness of the Mid-Atlantic assumed a lease with Friday Investment, which had originally included a guaranty by Bally Holding. When Bally Mid-Atlantic later defaulted, Friday Investments sought to enforce the guaranty against Bally Holding. Bally asserted that while the lease had been assumed, the guaranty was discharged.

In a divided opinion, the majority of held that under North Carolina law a guaranty is a separate contract from the underlying obligation, Tripps Rests. of N.C., Inc. v. Showtime Enters., Inc., 164 N.C. App. 389, 391, 595 S.E.2d 765, 767 (2004), with “[t]he strict independence of the two separate contracts is “not affected by the fact that both contracts are written on the same paper or instrument or are contemporaneously executed.” There remained, however, a genuine issue of material fact whether the guaranty was “required to be maintained” by the assumption or discharged.

The dissent disagreed that there was any ambiguity and that the guaranty was “required to be maintained”, with the lease and guaranty being a single contract.

Commentary:

This case does have implications beyond commercial leases, as co-signors in consumer leases and loans should similarly be able to assert that the discharge of their guaranty in a bankruptcy leaves the underlying contract still extant.

For a copy of the opinion, please see:

Friday Investments v. Bally Total Fitness- Guaranty Following Discharge in Bankruptcy

For additional review and commentary, please see:

NC Practice Appellate Blog:  Court of Appeals: A Guaranty is a Separate Contract No Matter What the Contracts Say

 

About

1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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One comment on “N.C. Court of Appeals: Friday Investments v. Bally Total Fitness- Guaranty Following Discharge in Bankruptcy
  1. Ed Boltz says:

    This case is set for argument at the North Carolina Supreme Court on August 28, 2017.

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